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Closing Comments

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Closing Comments

Corn closed higher again today on follow through short covering and protection against the expected heat due to arrive early next week in the western corn belt.  In the short term, all the weather models continue to show high 90’s to low 100’s degree temperatures for areas of Kansas, Nebraska, Dakotas, Western Iowa up to around July 28th, leaving little doubt of its certainty.  Some of the models are expecting temperatures to moderate after and others are calling for hot temperatures to persist into early August. 

 

US ethanol production through the week ending July 8th totaled 295 Mil Gal, up 6 Mil from the previous week and very close to the average pace needed to hit the USDA’s target, which was lowered slightly on Tuesday. Weekly ethanol stocks fell 19 Mil Gal on the week to 886 Mil. This is still 7% above last year, ethanol prices are above spot RBOB prices, and US gasoline stocks continue to rise counter-seasonally.  

 

Soybeans traded strongly higher today driven primarily by weather fears born by hotter and drier long term forecasts. A large heat ridge is forming in the 6-10 day forecast, with the latest runs showing a much longer duration than originally anticipated, extending its effects out to the beginning of August. Despite beneficial rains preceding this ridge, the market is building weather premium to prepare for the potential of a crop damaging event. With carry-out already approaching 250 mb, the historical threshold between ample and tight, the market could react wildly to perceived crop damage, as even a 2 bushel decline in yield will erase half of our domestic carry-out. From a technical perspective, the two main price objectives that lay above the market are a re-test of the 11.86 area, and if successful in trading through this, an extension target of 13.40. This price could be fueled by not only weather, but the fact that we continue to export beans at a cheaper price than both Argentina and Brazil. Another thing to keep in mind is that charged weather markets can easily defy both support and resistance in the ever changing volatility of a hot and dry summer forecast.

 

Wheat harvest pressure is still evident in limiting in rallies right now.  In general, the wheat market did try to participate when corn and beans were trading at their highs of the day by being 10 or so higher, but failed to keep any traction.  If focus could shift from harvest and a switch to possibilities to have La Nina set in, then rallies will be more sustainable in the near term.  The impact of large yields may also start to be considered as “old news” and an eye on what is next may take hold sooner rather than later from these levels.

 

Cattle enjoyed a mixed day of trade, before closing very near their highs and undoing about half of the chart damage done since Monday.  Fats led feeders today, as positive corn trade was much more of an obstacle to feeders than it was to fats.  Choice cut-out this morning was down $2.32 to $206.38, with select up $.64 to $196.04.  Part of the positivity in today’s markets could be a counter seasonal move lower for carcass weights, running nearly 8 pounds under last year, and not yet beginning the trend of growth that is typical from now until the beginning of winter.

 

Hogs closed weakly today in a continuation of recent action, failing late in the session back to support around the $79.17 area. While the downside should be limited by strong areas of consolidation between $77 – $80, the market does not seem able to gain any kind of positive momentum after nearly a $10 break. Interestingly, despite headlines of dead hogs in China, the market seems relatively content at today’s reduced prices.

Closing Market Snapshot

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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